All Forum Posts by: Marek Kucharski

I am leaning to sell just one. I have tenants in and could not have sold it. You are correct, I would be trading tenant risk for market risk. SP500 is down 17% this year. Perhaps this spring would not be the worst time to get in. The truth is that we do not know what will happen the RE or stock markets in the short run. Can we assume that stocks will continue outperforming in the long run? 

If I was to keep the house and get new tenants, these tenants would be paying down 1K of my mortgage every month, which seems good, but with the house being worth 320K, that's less than 4% ROI. 4% plus appreciation, if any.

My wife and I have three houses that we rent out. This journey started about 10 years ago. We have 15-year mortgages on these. The houses are worth about $800K (TX). We are very happy with how these houses appreciated; we put very little money down and were rewarded handsomely. Of course, this was no bed of roses: we put a lot of work into these - roof leaks, flooded floors, painting, clogged toilets, annoying tenants - you name it.

Today, we are contemplating selling one house and putting the profits into SP500. What makes us contemplate this is some back testing. For example:
- The first house was purchased in 2013 for $145K. That house is now worth $280K.
- If I was to invest $145K in SP500 in 2013, I would have about $500K

I know that the past is not the prologue, but I also know that historically housing trails the SP500. That said, in 2013, we were fresh out of grad school and did not have $145K to invest in the market. So, buying a house with 5% down was the only option. Today, we could sell one house or more and invest a larger sum for the long haul.

We have tenants moving out in the spring and we are considering selling. The house in question happens to be a house we lived in recently and we could sell it and not pay taxes on the sale. Do you think we should pull the trigger and put the money into the market? Thank you for your advice.

Relevant details: 

- Household income about $250K, which means that we cannot deduct rental losses

- All houses have 15-year mortgages , which means that they do not cash flow well. We are either in the red or breaking even depending on luck in a given your. Tenants are paying off our mortgage. 

- We could also sell, invest the money, and buy another rental (re-leverage)

So, this is a question about what is the best way in which to build wealth with real estate in our situation.

My husband and I have three rental homes. We bought them with 15-year mortgages.

They will be paid off in 9, 10, and 11 years, respectively.

There are three options that we are considering after that.

1. Sell the homes at the moment that they are paid off. Invest the money in the market (bonds, treasuries, dividend aristocrats). Buy another 3 homes, again with 15 year mortgages (they would be paid off exactly the year in which we retire). This would be good from a tax point of view as we would not have depreciated their total values, we also spent some time living in each home, and, because of our income, we were unable to deduct most of the losses each year, so they rolled over. The tax implications would be pretty favorable here.
2. Keep the homes. Cash out refinance. Use some of the money for down payments for three more homes, invest the rest (bonds, treasuries, dividend aristocrats). Now this is my husband's idea, but I am skeptical. Namely, if we were to keep these homes until we retire, we would have this wealth, but 1- we would have to maintain them, deal with the tenants, etc. in addition to the three "new" rental homes, 2-the tax implications would be much worse upon sale- they would have depreciated completely and- this is my main question--- CAN YOU DEDUCT CASH OUT REFINANCED INTEREST for rental properties? My gut tells me- no. Also, I really am not sure that once they are paid off that they are worth the hassle. They bring in about 4% rate of return annually, after taxes, HOA fees, etc. if they are systematically rented. I could get that in the market and it seems that if we cannot deduct the cash out refinance- we would be losing this money to interest payments. Though of course, they also grow in worth, but you also have to pay real estate agents annual fees to look for tenants, sometimes things break, sometimes there is a period where they are empty, etc.
3. Keep the homes. Buy three additional rental homes. Again, the initial homes will depreciate completely, and the same holds true, as above for rate of return. It makes so much sense to have these rentals when they are leveraged- I have tenants paying off my mortgage, but I really feel that the advantage goes away when they are paid off- am I wrong?

Thank you very much for reading this lengthy question. Which option do you think makes the most financial sense? And why?

((FYI- We are maximizing Roth accounts, putting money in a 403B (not maxed because we have two little ones in daycare), and have a nice pension coming our way)- so this is really meant to be about 1/3+ of our retirement plan. We are hoping to build wealth, what is the best way to do it?) )

So, this is a question about what is the best way in which to build wealth with real estate in our situation.

My husband and I have three rental homes. We bought them with 15-year mortgages.

They will be paid off in 9, 10, and 11 years, respectively.

There are three options that we are considering after that.

1. Sell the homes at the moment that they are paid off. Invest the money in the market (bonds, treasuries, dividend aristocrats). Buy another 3 homes, again with 15 year mortgages (they would be paid off exactly the year in which we retire). This would be good from a tax point of view as we would not have depreciated their total values, we also spent some time living in each home, and, because of our income, we were unable to deduct most of the losses each year, so they rolled over. The tax implications would be pretty favorable here.
2. Keep the homes. Cash out refinance. Use some of the money for down payments for three more homes, invest the rest (bonds, treasuries, dividend aristocrats). Now this is my husband's idea, but I am skeptical. Namely, if we were to keep these homes until we retire, we would have this wealth, but 1- we would have to maintain them, deal with the tenants, etc. in addition to the three "new" rental homes, 2-the tax implications would be much worse upon sale- they would have depreciated completely and- this is my main question--- CAN YOU DEDUCT CASH OUT REFINANCED INTEREST for rental properties? My gut tells me- no. Also, I really am not sure that once they are paid off that they are worth the hassle. They bring in about 4% rate of return annually, after taxes, HOA fees, etc. if they are systematically rented. I could get that in the market and it seems that if we cannot deduct the cash out refinance- we would be losing this money to interest payments. Though of course, they also grow in worth, but you also have to pay real estate agents annual fees to look for tenants, sometimes things break, sometimes there is a period where they are empty, etc.
3. Keep the homes. Buy three additional rental homes. Again, the initial homes will depreciate completely, and the same holds true, as above for rate of return. It makes so much sense to have these rentals when they are leveraged- I have tenants paying off my mortgage, but I really feel that the advantage goes away when they are paid off- am I wrong?

Thank you very much for reading this lengthy question. Which option do you think makes the most financial sense? And why?

((FYI- We are maximizing Roth accounts, putting money in a 403B (not maxed because we have two little ones in daycare), and have a nice pension coming our way)- so this is really meant to be about 1/3+ of our retirement plan. We are hoping to build wealth, what is the best way to do it?) )